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Stocks Roll Over on Heavy Volume

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Stocks Roll Over on Heavy Volume

Stocks in the US started the trading session on a positive note as the ECB surprised the investor community by cutting interest rates. US GDP was better than expected while jobless claims came in better than expected. Toward mid-day stocks turned negative and accelerated to the downside into the close. The Nasdaq was the worst performing major index declining 1.9%.

Prior to trading in the US, the ECB cut their short term interest rate benchmark to 25 basis points from 50 basis points. The rumblings about the high level of the EU’s currency could have been one of the reasons the ECB cut rates. The periphery of Europe desperately needed a reduction in the value of the Euro exchange rate to spur growth. Inflation has declined recently hitting 0.7% on an annualized basis well below the ECB’s 2% target, which needs to be boosted to generate growth. The Euro immediately dropped on the news, declining nearly 2 big figures below 1.33.

The GDP data that was released on Thursday was the first look at the 3rd quarter. Most economists believe there was very little data in the numbers that reflected the government shutdown. The number will likely be revised, and if not, growth will come out of the 4th quarter numbers. According to the Commerce Department, GDP increased by 2.8% better than the 2% expected by economists.

Technology shares moved lower pushing the Nasdaq down as negative momentum accelerated. The MACD (moving average convergence divergence) index generated a sell signal as the spread (the 12-day moving average minus the 26-day moving average) crossed below the 9-day moving average of the spread. The MACD index moved from positive territory to negative territory confirming the sell signal.

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